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A practical guide to budgeting

Effective budgeting can help practices ensure they are a financial success. Laurence Slavin explains how to do this and provides a sample spreadsheet to help with calculations.

Budgeting should be done prospectively, looking ahead (Picture: iStock)
Budgeting should be done prospectively, looking ahead (Picture: iStock)

Budgeting has always been a useful discipline, much loved by bank managers when someone applies for a loan or overdraft, but of limited value for GPs until recently.

What has changed is the irregularity that Capita, PSCE, NHS England and local authorities pay GP practices, and the squeeze on finances, which requires GPs and practice managers to steer the practice through the year perilously close to the precipice of debt.

What is budgeting?

In its simplest form, budgeting sets out an expectation of income and expenses and crucially a comparison of those budgets to actual results. 

This will not only show those sources of income and expenses that are moving out of expected levels, but will also highlight those items where nothing has been received at all. Without a budget, those items might have been missed altogether.

Budgeting should be done prospectively, looking ahead. The opposite of the annual accounts which show the position for the previous year. Some accounting programs will allow budgeting within the program and you can use spreadsheet programs like Excel.

The examples here show the budgets for the Sample Surgery. Using Excel, there is a separate tab for the income budget, the management expenses budget, the salaries budget, the wages budget and the drawings budget. There is also a summary that all the other pages link into. 

Setting up the spreadsheet in this way allows at a simple glance to see which sources of income and which items of expenditure are going to plan, and highlights at an early stage which items will need action. It is much easier to deal with a source of income that has not been paid or an expense that is getting out of control as it happens rather than at the accountants meeting in a year’s time.

How should the budgets be set?

It is common to see budgets set at the previous year’s level, or last year plus (say) 5%. It is less common, but more helpful, to take a fresh look at the items and for the practice to base the budget on a fresh review of expected need. 

For some practices that have been impacted badly by recent contract reviews, meeting the budget might mean the difference between the practice remaining viable or having to close. In those circumstances the budgets may have to be set very tightly, perhaps at a level that feels uncomfortable to the GPs. But at least the practice will know what to expect and what they can afford from the budget.

How accounting programmes can help

You might be thinking that the Excel spreadsheet is quite a lot of work to maintain as well as the practice accounts program. You would be right. The good news is that some accounting programs will have a budgeting facility within them, so that as the data is input for the accounts, it also throws up the variances in the budget. 

The latest development is cloud-based accounting software that allows authorised users access to the practice accounts and budgets from wherever they have internet access, so that the performance of the practice and the compliance to the budget can be checked by the partners, the managers and their accountants at any time.

If you think budgeting might be helpful to you, in the first instance contact your accountant who can help you set up the systems you need. 

  • Laurence Slavin is a partner with Ramsay Brown and Partners chartered accountants who specialise in the finance of GPs. He is also certified by Xero cloud-based accounting software

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